UK/Euro Financial Market Daily Evening Briefing 15-01-2008

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London shares close sharply lower as Dow slumps on weak retail sales news
 
The FTSE 100 closed sharply lower Tuesday -- its lowest level for over a year -- as a 9.8 bln usd Q4 loss from Citigroup andweaker than expected retail sales sent the Dow into an early three-figure dive, with UK retailers back in the spotlight after Christmas trading updates from Tesco and Debenhams.
   
By the close, the FTSE 100 index was 190.1 points lower at 6,025.6, while the FTSE 250 index finished down 265.8 points at 9,765.8. Volume improved during the session, with 2.85 bln shares changing hands in 898,558 deals.
   
Over on Wall Street, US stocks were more than 200 points lower as a weak retail sales number for December and news of a massive Q4 loss at Citigroup sent investors scurrying for the exits. A short while ago, the DJIA was down 220 points at 12558.0, with the Nasdaq down 51.4 at 2426.9.
   
In London today, the latest CPI numbers showed for the third month in succession the reading held at 2.1 pct, which further drove expectations for a rate cut from the Bank of England next month, but did little to sooth investors' nerves, with the FTSE 100 plunging back below the 6,200 level to trade at a new low for 2008.
   
Key focus again in London was on the retail sector with Tesco, Debenhams and Burberry reporting sales figures for Christmas and New Year.Tesco reported UK sales growth over the Christmas and New Year period was below market forecasts, reflecting intensifying competition in the sector and the declining consumer environment.
   
UK like-for-like sales excluding petrol for the six weeks to Jan 5 increased by 3.1 pct. Analysts' expectations ranged between 3.8-4.5 pct. The performance represented a slowdown from the 4.1 pct achieved in the third quarter. Tesco's performance was also behind the 3.7 pct like-for-like growth achieved by rival J Sainsbury. Tesco's shares closed down 13 at 407
   
Debenhams shares finished down 12.75 at 63.75 after reporting for the four weeks of Christmas to Jan 5 2008, the retailer's total sales increased 4.4 pct compared to the same period last year, while sales on a like-for-like basis, which strips out the impact of new and closed stores, increased 2.2 pct.
   
For the 18 weeks to Jan 5 total sales were up 2.0 pct, while like-for-like sales were flat, "reflecting the poor general market conditions experienced across the sector earlier in this period" -- a reference to a disappointing
November.
   
The outcome compares with analysts' forecasts of a 2 pct dip in like-for-like sales but represents a slowdown from like-for-like sales growth of 2.1 pct for the first seven weeks of the period to Oct 20, reported Oct 23. Elsewhere oil majors slid back as oil plunged over 2 usd as fears of a recession hammering oil demand knocked sentiment.
   
US data earlier today did little to alleviate such fears, with US retail sales for December and the December headline PPI reading both weaker than expected, casting fresh doubts on the health of the world's biggest economy. 

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Among UK listed oil producers, BP dipped 24 to 573 with sentiment further dented as Lehman cut its rating to 'underweight'. Peers Royal Dutch Shell fell 66 to 2,004 and Tullow Oil dipped 17-1/2 to 562.
   
Of only a handful of stocks to close in positive territory, J Sainsbury finished up 6-3/4 at 386 after Goldman Sachs upped its stance in the grocer to 'buy'.
   
The property sector was also a mover today with a trading statement from Taylor Wimpey confirming the negative trend in the housing market.
   
The builder said full year profits should be in line with market expectations but like the recent update from the likes of Persimmon, it has seen a big fall in its order book due to diminishing consumer confidence and a more difficult mortgage environment.
  
As it was Taylor Wimpey eased 13.3 to 159.2, with Persimmon off 23 at 716 and their midcap competitors also lower.
   
In broker generated action, Kingfisher closed 8.9 lower at 122.2 as JP Morgan cut the group to 'neutral' from 'overweight'.
   
JP Morgan said Kingfisher's B&Q unit faces major challenges in the first two quarters of 2008/2009 from the impact of the slowing housing market and adverse competition for showroom and seasonal, its two largest categories.
   
And HSBC lost 38-1/2 to 772-1/2 as Goldman Sachs maintained a 'sell' rating on the group after saying it expects to make a further provision of 13 bln usd to cover losses related to US subprime mortgage investments.
   
Firstgroup was 40 weaker at 634 as Goldman Sachs downgraded the group to 'sell' from 'neutral'.
   
British Land was 62-1/2 weaker at 892 as SG Securities downgraded the group to 'sell' from 'hold' and reduced its target by 10 pct to 780 pence, from 870 previously, to take into account a less favourable market environment.
   
Among midcaps, Northern Rock slumped 16 pct to 69.25 as shareholders rejected attempts by the lender's biggest investors to influence the stricken lender's efforts to find a buyer.
   
In a statement, Northern Rock said the single measure that won shareholder approval -- which obliges the bank to consult investors before issuing new shares worth more than 5 mln stg -- "will not prove to be an additional material restriction" on the group's efforts to overcome its financial crisis.

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Elsewhere, Burberry lost 80 to 406-1/2 as it posted a 26 pct increase in third-quarter underlying revenue but was below internal hopes. Venture Productions was also on the backfoot, off 109 at 737 after a negative trading update this morning, with Merrill Lynch repeating its 'sell' stance in reaction.
   
Imperial Energy dropped 180 to 1,635 as chairman Peter Levine sold one-third of his holding in the company, according to a press release this morning.
   
Game Group fell 26 to 200 as it said total sales for the UK and Ireland increased by 77.9 pct, with like-for-like sales up by 30.3 pct, while the international business recorded a 72.8 pct rise in total sales and a 35.4 pct rise in like-for-like sales for the same period.
   
A broker downgrade left shares in Michael Page down 14-3/4 at 229-1/4 as UBS downgraded the group to 'neutral' from 'buy'. On a brighter note, Northern Foods gained 2 to 85.75 as it said its full-year pretax profit pre-restructuring will meet market consensus despite continued "challenging" conditions.
   
Elsewhere, N Brown was 2-3/4 higher at 244-1/2 as the company said it is confident it will meet full-year profit expectations, after reporting robust Christmas trading, prompting Seymour Pierce to keep 'outperform' on the stock. Finally, a bid approach for AIM listed Regent Inns helped boost Restaurant Group 13 to 136.

UK Diary of Event:
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UK Small Cap Report:
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Madrid shares close sharply down as banks, Inditex weigh

The IBEX-35 index closed down 486.70 points at 13,945.20, after trading in a range of 13,945-14,394.
   
Equities opened lower as weak US futures and declines in Asia outweighed Wall Street's overnight rebound, and extended losses over the morning ahead of key US PPI data.
   
The IBEX-35 index moved sharply lower after an early dive on Wall Street and lower than expected retail sales, extending losses throughout the afternoon to close at a low.
   
Banks were on offer, with Santander falling 0.52 eur or 3.85 pct to 13.00 after its 24.5 pct controlled Sovereign unit said late yesterday it is estimating fourth-quarter losses of around 1.580 bln usd.
   
BBVA shed 0.52 or 3.40 pct to 14.77, while Bankinter was down 0.90 or 7.68 pct at 10.82, Popular lost 0.46 eur to 10.40, Banesto fell 0.59 eur or 4.97 pct to 11.28, and Sabadell slipped 0.26 eur to 6.29.
   
Earlier, Bear Stearns gave a review of the Spanish banking sector, in which the broker gave 'underperform' recommendations for Popular, Bankinter and Sabadell.
   
Other heavyweight peers Telefonica dropped 0.43 eur to 21.84 and Repsol YPF lost 0.84 eur to 22.75.
   
Inditex headed blue chip losses, down 3.10 or 8.83 pct at 32.00, after US retail sales in December came in below forecasts and Burberry tumbled after announcing a full-year profit warning.
   
Among the session's outperformers, Indra slipped 0.09 eur to 16.72 after announcing expectations for 18-22 pct net profit growth in 2008 and after Cheuvreux upped its stance to 'outperform' from 'underperform'.
   
Agbar was among the few session gainers, adding 0.02 eur to 27.63 ahead of tomorrow's last day of the acceptance period for the Criteria, Suez bid, and before it is temporarily excluded from the Ibex-35 starting Thursday.
   
Selected small caps also fared better, with Zardoya Otis up 0.07 eur at 15.93 after Deutsche Bank upgraded its stance on the shares to 'buy' from 'sell' on valuation grounds.

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German shares close lower as Hypo Real Estate drops; Wall Street weighs

The DAX closed 165.64 points or 2.14 pct lower at 7,566.38 points, having traded between 7,563.90 points and 7,724.26 points so far today. The MDAX lost 266.87 points or 2.99 pct to 8,657.60 points, while the TecDAX was down 34.73 points or 3.94 pct at 847.36 points.

DAX futures fell 182.00 points or 2.33 pct to 7,634.00, while bund futures were 0.39 points or 0.34 pct higher at 115.87 points. The euro was trading at 1.4835 usd, compared with 1.4870 usd in London midday trade.

Weighing further, the statistics office said German GDP growth slowed to 2.5 pct in 2007 from 2.9 pct in 2006 on an unadjusted basis, and to 2.6 pct from 3.1 pct after adjusting for the number of working days.

ZEW research institute's economic expectations index, too, declined for the seventh time in the past eight months, dropping to minus 41.6 in January, from 37.2 in December.

Leading large caps lower, Hypo Real Estate plunged 11.74 eur or 35.17 pct to 21.64 eur after the company said it no longer expects to have reached 12 pct after-tax return on equity in 2007 and sees 2008 RoE at 10-12 pct.

 The company also slashed its 2007 dividend to 0.50 eur per share from 1.50 eur in 2006 after full-year pretax profit came to 890 mln eur, compared with year-earlier pro forma profit of 1.22 bln eur after taking a 390 mln eur charge during the fourth quarter.

Peers also dropped on the news, with Commerzbank declining 2.10 eur or 8.31 pct to 21.64 eur, Deutsche Postbank retreating 2.95 eur or 4.54 pct to 62.00 eur and Deutsche Bank falling 2.15 eur or 2.54 pct to 16.78 eur.

TUI fell 1.02 eur or 6.11 pct to 15.67 eur. The company said its chief financial officer Rainer Feuerhake is being charged for wrongdoing related to insolvent engineering group Babcock Borsig's acquisition of some of the travel group's assets.

The charges include breach of trust and aiding delays in Babcock Borsig's filing for insolvency, it said. On the upside, utilities were the stocks ending today's session higher, with EON adding 0.72 eur or 0.50 pct to 145.76 eur.

Citigroup added the company to its list of 'Top Picks' in utilities and lifted its price target on the stock by 15 pct to 169 eur, saying high earnings visibility and rising power prices could deliver a sixth straight year of market outperformance for the sector.

Peer RWE, which is already on the list, gained 0.36 eur or 0.38 pct to 94.67 eur, as Citigroup raised its price target by 3.5 pct to 115 eur.

Over on the MDAX, Pfleiderer dropped 1.72 eur or 12.67 pct to 11.86 eur amid uncertainty over the reasons behind the hasty departure of the group's CFO Derrick Noe, announced last night. The company did not give a reason for the CFO's immediate departure.

At the other end, K&S rose 2.19 eur or 1.25 pct to 177.72 eur. TecDAX-listed QSC slumped 0.35 eur or 13.57 pct to 2.23 eur, while Carl-Zeiss Meditec declined 0.07 eur or 0.65 pct to 10.75. There were no gainers on the TecDAX.

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Amsterdam shares close sharply down as Wall Street slides

The AEX closed 14.18 points or 2.93 pct lower at 470.54, its lowest point of the day, after opening at 483.58 and trading in the range 470.54-484.39. Government bonds traded higher while the euro stood at 1.4860 usd versus 1.4890 usd late yesterday.

Corporate Express led the day's decliners, closing off 7.92 pct at 4.07 eur, as investors fretted about the North American market, key to the company. Steel giant ArcelorMittal was 4.02 pct lower at 44.45 eur. The company said last night the final number of fatalities in the Abaiskaya mine accident in Kazakhstan is 30 people.

TomTom, also active in the North American market, closed 3.85 pct down at 38.94 eur. NG slashed its target on the stock to 57.90 eur from 70, while maintaining its 'buy' rating on valuation grounds.

Brewer Heineken was off 3.58 pct at 39.29 eur on ongoing concerns that it will have to enter a higher bid to secure Scottish & Newcastle. Overnight the company said it has acquired Tango Brewery in Algeria for an undisclosed price.

Randstad fell 1.53 pct to 27.0 eur, following a downgrade to 'sell' from 'neutral' at UBS, on concerns of the impact slowing economies will have on the staffing sector. Takeover target Vedior was off 1.72 pct at 17.11 eur.

Among financials, ING fell 2.63 pct to 25.52 eur, Fortis was off 3.23 pct at 16.80 eur and Aegon closed 2.42 pct lower at 11.27 eur. On the midcap, Oce fell 6.55 pct to 20.83 eur on profit-taking after yesterday's rally on the back of solid fourth-quarter results.

ASMI shed earlier gains to close down 1.31 pct at 13.52 eur, as it emerged that activist shareholder Fursa Alternative Strategies UK Ltd has called on the company to change its corporate structure or risk an "exchange offer" that would involve shareholders seizing control of the Dutch semiconductor company. Hagemeyer was the only blue chip gainer, rising 0.21 pct to 4.74 eur.

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